Chili’s CEO Kevin Hochman admitted the brand may have missed the mark on its latest round of menu changes.
Menu mix was lower than prior quarters, and most of that was self-inflicted. Last year, Chili’s decided to place former virtual brand It’s Just Wings as an appetizer on its new bar menu. The idea was customers would attach wings to their alcohol orders or guests coming in for dinner would be enticed to start with wings. Chili’s even placed a picture of the product on the menu to persuade consumers. However, the plan seemed to work too well. Customers indeed ordered more wings, but they were using them as an entrée replacement.
“We’ve removed the pictures of wings off the menu,” said Hochman during Brinker International’s Q2 earnings call. “It’s back to being line listed, and we expect that mix will come down on wings because of that move and that will reduce the amount of trade down that we’re seeing from entrées into wings.”
The same thing happened with quesadillas. Chili’s placed it in the appetizer section, inserted photos, and saw a decrease in entrées. Those pictures were eliminated in the latest menu as well.
The brand is also hoping to improve menu mix by aggressively featuring premium items in an insert that goes inside the foldable menu. The card usually drives mix of whatever it displays. Recognizing that, Chili’s is emphasizing its Fajita Trio, which is its highest-priced fajita, and its Triple Dipper, by far the best-performing appetizer from an average check and profit standpoint. The 6-ounce Classic Sirloin is spotlighted too. On the other side of the feature card are premium margaritas, like the El Nino, Casamigos, and Spicedarita—all at $10 or higher. Chili’s has more than doubled its ultra-premium margarita mix using this method.
The restaurant isn’t forgetting about its price-sensitive customers either. The chain still has its $6 margaritas and $3 and $4 Modelo, Negros, and Bud Lights. Chili’s also added Coors Lite and Miller Lite.
“So now we have the top four beers for happy hour at a very attractive price point that we can still make money on but is attractive enough that’s going to bring that guest in,” Hochman said. “We are going to continue to focus on how do we continue to push the envelope on value but continue to expand margins.”
The company has found success using an opening price point on an entrée to drive traffic, but then allowing guests to come in and trade up. With the Chicken Crispers, customers have a minimum option of four pieces, however, Hochman said a decent portion is moving toward the higher-priced six-piece deal at more than $16.
“I think we tend to think of the consumer as one person, and they’re not really one person,” Hochman said. “There’s a price-sensitive guest that we’re winning with exceptional value, and then there’s a guest that comes in and they’re going to get what they want. And at the end of the day, if you can deliver on consumer needs, whether it’s on a low price point or whether it’s on premium products or larger bundles, you’re going to win over time. And I think that’s what’s happening with this barbell strategy.”
All of the menu arrangements are backed by a renewed TV strategy. The brand will keep focusing on its 3 for Me value platform in its advertising, which is causing a noticeable lift in traffic. In the second quarter, traffic declined 0.6 percent, a major improvement from the 5.8 percent decline in Q1. Additionally, unaided awareness—or the ability for a guest to recall the chain without the prompt of advertising—has increased 9 percent in the past year.
Chili’s has deployed multiple advertising windows since it returned to TV in March 2023. The restaurant drove positive traffic in October while it was on TV and beat the industry for the remainder of the quarter. And compared to last year, the company is seeing more sustained business lifts post commercials.
For the fiscal year, advertising will represent 3 percent of sales, up from 1.5 percent in 2023. That’s close to where the brand was pre-COVID before it pulled back on TV. The chain will spend $20 million more on advertising in Q2 than it did last year during the same period.
“We are not even focused on a ceiling [for our advertising spend],” Hochman said. “We are just focused on making sure the next dollar that we deploy has the return that we have seen in the previous dollars or better. So, right now, from the returns that we’ve been seeing in the traffic gains, and then more importantly that the traffic gains are more sustainable given the experience improvements, gives us confidence to continue to lean forward and invest.”
The chain will fund these additional advertising dollars by simplifying and reducing costs in other parts of the business. For instance, Chili’s is eliminating the harder-to-execute double burger at lunch time and going with a bigger single patty. The net result is a little more beef for customers and a cheaper cost for Chili’s. The brand is also looking at removing some equipment, like slicers, that require a lot of cleaning.
Chili’s knows that it’s generally younger customers responding to the advertising, but it doesn’t yet have granularity into specific questions, like whether they were lapsed users or when was the last time they visited a restaurant. The company hopes to have more information as it builds its CRM platform and fleshes out guest profiles.
Next in advertising is testing new ways to talk about offerings as well as bringing new food news to the 3 for Me platform.
Chili’s same-store sales grew 5 percent in Q1, including a 6.6 percent rise in price. It ended the quarter with 1,606 units systemwide. Maggiano’s comps lifted 6.7 percent, with a 10.5 percent lift in price. The Italian concept had 52 stores domestically.